Vale says stays in aluminum with Norsk Hydro deal

* Vale says pricey electricity slows aluminum growth

* Says becoming investor rather than operator in aluminum

Brian Ellsworth

RIO DE JANEIRO, May 4 (Reuters) - Brazilian miner Vale's purchase of a 22 percent stake in Norsk Hydro will give Vale long-term access to aluminum markets even after it exits the aluminum industry as an operator, a Vale director said on Tuesday.

Vale, the world's largest iron ore miner, said on Sunday it would sell its aluminum assets to Norwegian aluminum maker Norsk Hydro in a surprise $4.9 billion deal that lets Vale keep exposure to the aluminum value chain from bauxite to aluminum products.

"This is a strategic repositioning in which Vale stops being an operator and becomes a major partner of a global aluminum company, and makes that company (Norsk Hydro) much more competitive in the future," said Vale Aluminum Director Ricardo Carvalho in a conference call with reporters.

High-cost electricity in Brazil has made it difficult for Vale to expand in the energy-intensive aluminum business. At the same time, Norsk Hydro has consistently had to buy raw material such as bauxite from other companies.

Analysts were largely positive on the deal, describing Vale's aluminum segment as less profitable than its core iron ore business.

"We see the sale of aluminum and bauxite assets as strategically positive for Vale," said HSBC analysts in a research note. "The aluminum division has always had weak performance and the capital freed up can be applied to develop more lucrative assets in iron ore."

Carvalho denied the company was reducing aluminum exposure to boost iron ore investments, saying the deal was structured such that the principal compensation to Vale came in the form of Norsk Hydro shares rather than cash.

In addition to shares, Vale will receive $1.1 billion of cash for assets including the world's largest alumina refinery and one of the world's biggest bauxite mines. The Norwegian company will assume $700 million of debt.

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"Despite having the advantage of extensive access to the raw materials needed for aluminum production (alumina and bauxite), Brazil has lost competitiveness in the sector due to high electricity tariffs compared with other countries," analysts for Brascan Corretora said in a research note.

Vale was part of a consortium that bid last month for the rights to build an 11,000 megawatt hydroelectric dam in the Amazon but lost out to a rival group.

Carvalho said the deal was unrelated to that dam auction and had been negotiated long before it.

"This transaction provides (Vale) with the flexibility to exit the assets in future through a liquid instrument, but also provides a strategic stake in Hydro should Vale turn more constructive on aluminum longer term," analysts for UBS Investment Research said. (Editing by Steve Orlofsky)